IPOs Crash, Startup Valuations Plunge, Era Ends

An ugly time for IPO stocks.

Hortonworks shares crashed 37% on Tuesday after it became known that it had filed a registration statement with the SEC last Friday for a proposed follow-on offering to raise $100 million. This will substantially dilute current stockholders.

The company, which sells big-data software based on Apache Hadoop, went public in December 2014 with great hoopla and an IPO price of $16. Shares then spiked to $29.20. Despite yesterday’s plunge, they continue to fall this morning and as I’m writing this are trading at $10.17. That’s 35% below the IPO price and 65% below their high.

The company has an unbroken record of net losses exceeding its revenues. And so far, the more it sells, the more it loses. Its $33 million in sales in the third quarter generated $44.5 million in losses. With cash going up in flames at this pace, it was time to raise new cash at the expense of current investors.

Digital payments company Square plunged 7.8% on Tuesday and another 9.5% this morning, to $8.57, plunging right through its $9 IPO price. When it went public last November, the startup exuberance of 2013 and 2014 had already curdled. To push the deal out the door, it had to cut its IPO price below its valuation established during the last funding round. When shares popped to $13.07 on the first day and then rose to their peak of $14.78, everyone breathed a sigh of relief. It just didn’t last long.

Square’s CEO Jack Dorsey is also CEO of another crashed IPO, Twitter, which on Tuesday plunged 7.0% and this morning another 6.6% to a new all-time low of $15.60, down 40% from its IPO price of $26, and down 80% from its all-time high.

Box, which tries to fight it out with the big boys in the “cloud” collaboration and file-sharing environment, plunged 7.7% on Tuesday and 3.5% this morning, to $9.07. It had gone public a year ago at an IPO price of $14, jumped to $24.73, and went downhill. It’s down 63% from its instant peak and down 35% from its IPO price.

It has been that kind of hell for startup companies.

The Renaissance US IPO Index, which tracks newly public companies for two years, peaked in April 2015 and has since plunged 29% as of Tuesday’s close.

Behind the scenes, it doesn’t look any better. There have been a spate of startups that recently raised money in a “down round,” where the high-flying “valuations,” negotiated by a handful of people and leaked to the media to create the requisite hype for future rounds of funding, were cut in half.

So Jawbone, which makes activity trackers, raised $165 million “largely” from the Kuwait Investment Authority, Re/code reported on Friday. So far, the company has raised $1 billion. The prior round of funding gave it a “valuation” of $3 billion. This round cut that in half, to $1.5 billion.

That’s a lot of imaginary wealth gone up in smoke. But not all lost equally. Re/code:

The restructuring of the cap table — which is what this is, diluting investors not participating in the new round (down) — has an unusual twist in it. Despite a lower valuation, a larger pool of equity for employees has apparently eliminated losses in value of their shares (up).

This way, employees who’d been counting on this money, can still, for the time being, count on it. This is supposed to keep employees focused on doing their jobs rather than polishing their LinkedIn profiles.

In the same breath, Jawbone’s president Sameer Samat, who’d arrived from Google in May, is throwing in the towel and is going back to Google. Jawbone competes with all kinds of makers of wearables, including Apple (down 3% this morning and 29% from its high) and Fitbit, another crashed IPO darling.

Fitbit went public in June 2015 at an IPO price of $20. Within weeks, shares hit $51.90. This morning, they plunged 9.1% to $16.02. That’s 20% below their IPO price and 69% below their peak in August.

So the mood has soured. Some of this was already apparent late last year, which overall was a record-setting cash binge for VC-funded startups, with investors pumping $128.5 billion into them globally, according to CB Insights and KPMG. This money pushed “valuations” of 71 startups into the glorious $1-billion club. The third quarter set a record at $38.7 billion globally. But in the fourth quarter, the hot air hissed out and funding plunged almost 30% to $27.2 billion, the lowest since Q1 2013.

Investors are fretting about cash burn, and about the current generation of startup managers that has no clue how to get their companies to generate a profit. Instead they’re relying on easy-to-get VC money and then IPO money to fund their operations. Twitter still hasn’t figured out how to make a real profit, and Hortonworks has to raise new money to be able to keep burning through investor cash: and look what happened to their shares.

Investors finally see these things and shudder.

In a letter to Yahoo, activist investor Canyon Capital Advisors admonished Yahoo that it must not waste any more cash on buying startups, according to Reuters, which saw the letter. The letter contends that the company spent over $3 billion on acquiring startups, to which the stock market, as Reuters paraphrased the letter, “appears to ascribe absolutely no, or negative, value.”

So how are startup investors going to cash out? That’s the number one question.

The IPO window has become a bloody affair. The blind buy-anything-at-any-price euphoria has dissipated. Even the “smart money” is now figuring out what some of these startups are worth. Yahoo CEO Marissa Mayer, feeling the hot breath of activist investors on her neck, isn’t going to splurge on startups for a while. Other big corporations whose stocks are crumbling, like IBM (down 43% from its high in 2013), are going to have second thoughts. And good exits may be tough to find.

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

95 comments for “IPOs Crash, Startup Valuations Plunge, Era Ends”

That’s all very heartening to hear. Yet, unlike 2008, no layoffs in sight, especially here in Bay Area. Where is the panic when the stock market falls?

The bizarro world continues to chug along — first it was stock boom, then housing boom, start up boom, valuations based on no profits, and now no lay offs.

The million dollar, err, billion dollar (I am a unicorn too) question is — when will the principals at the VC firms start panicking? Why are they not panicking? What do they know that the rest of us do not? Is there a rumor of another QE that is doing the circles of Ivy league graduates?

CalPERS, for example, is very heavily invested in start ups. If their valuation goes south with start ups, a lot of teachers in CA need to worry about their pensions. Since that cannot be, is it a bad assumption that Fed will bail Silicon Valley out just to keep pension funds afloat? Is this what Principals are “banking” (the word is appropriate because it now means “hoping for a bailout”) on?

Gee

Jan 20, 2016 at 12:22 pm

It’s early. The worm is just turning.

Pangloss

Jan 20, 2016 at 11:41 pm

This is hysterical. Little more than three weeks into the sell-off and you’re expecting to see mass layoffs across the board?

Look in the commodities sector. Look at Walmart, look at retailers (MACYS), heck mosey on down to your local small businesses and ask them (horrible Christmas for most). It’s just starting.

Stop asking questions of the magic mirror called the internet and walk down to the local stores and see the discounts.

Should you live in one of the top ten richest counties in the USA I can assure you everything will look normal until the barbarians arrive at your gated community.

TheDona

Jan 20, 2016 at 1:04 pm

The teacher pensions are vested with the State and will not go down. The State will just kick that can down the road…unless we see the first State to go bankrupt. That could be a real game changer on so many levels. The startups devaluation will only hurt the private sector worker bee’s locked up into the overhyped 401ks.
Which means they can’t retire and then no openings for Millennials who will become the equivalent of Japan’s (and most of Europe’s) Lost Generation.

Gian

Jan 20, 2016 at 2:27 pm

CALSTERS (teachers’ pension fund) and CALPERS (state, county, city pension fund) are already woefully underfunded to the tune of $300 billion and projections for future growth are erroneously based on returns of 7.5%. Although Union backed legislation requires taxpayers to make up any shortfall, a federal bankruptcy judge (San Bernardino City) has ruled that pensions can be renegotiated in bankruptcy. However, all three cities in CA who filed bankruptcy have elected not to renegotiate pensions and have offered bond holders pennies on the dollar instead. If everything continues to go south, you’ll see a new round of tax increases on CA’ians.

Petunia

Jan 20, 2016 at 4:48 pm

When Jeb left the governorship of Florida he went to Lehman Brothers, after which the Florida state employees retirement fund got stuffed with Lehman junk. Another reason he is in last place in the polls here.

The answer is the VC principals know nothing. They’re full-on in a hope trade now, praying that their own portfolio will stay afloat and get taken out by some of the big boys (GOOG, APPL, etc.) who have cash to spend and are willing to take on the (in many cases, smart) employees of a no-revenue entity. Shockingly enough, as an Ivy Leaguer myself with lots of Ivy League VC/PE friends, I can confidently say that many of these “investors” couldn’t even tell you what QE is, how it works, or why it’s relevant. But damn – they sure are good at building fancy excel models and eloquently pitching their funds to prospective pension funds and other dumb institutional money. Without that, in a room, almost none of them would beat the market. Intellectual capture at its finest…

nick kelly

Jan 20, 2016 at 2:15 pm

Wow. You wouldn’t be allowed to invest public pension money in starts- ups in Canada.

Vespa P200E

Jan 20, 2016 at 3:27 pm

Well no RIF (reduction in force) announced, YET, but it is coming even to SF Bay area and yes even SillyCON valley.

I was working for the at the time largest software company and came to a meeting in SillyCON valley in 2001 when it was going thru gut wrenching layoffs mostly by hardware stalwarts like Cisco, Lucent, Intel, Sun, Seagate, etc. Taxi driver was H1B ex-engineer afraid of getting deported.

2008 downturn also impacted Bay area as I recall how light the traffic was back than and it got much worse starting 2013.

SF is turning into and over-run by new social media young turks feelin mighty invincible that really add NO value to the society other than distractions of narcissism and envy. These guys haven’t really faced downturns, yet. Host of nutty app start-ups popped up but alas only few will make it as what appeared to be abundant sucker VC money evaporates when markets goes south.

Anyway – next up for fall is way overbought SF housing, followed by closures of hip places to hang and who knows some of these whiz kids might work for Uber as driver…

Have you checked with the good people who work at Yahoo and are now fearing for their jobs? They have “layoffs in sight.”

Rumors peg them at 20% to 25% of the workforce. Yahoo has refused to deny it. Mayors said in early January (Jan 8?) that there would be no layoffs “this week.” This went viral.

Lots of Bay Area companies have laid off people, including startups. But so far, the demand for workers at other companies has been strong enough to mop them up.

Vespa P200E

Jan 20, 2016 at 5:22 pm

Good point Wolf and clueless Melissa throwing a grand X-mas bash and her return to the office after giving birth to twins with privilege of nannies with nursery right next to her office – guess role model for working moms or something.

I worked for biotech start-up and the money flowed easily to the tunes of $175 mil in 2 yrs then it dried out completely in 2008. VCs from initial rounds said they are forced into picking/culling winners and losers in their portfolio and we were not on winner side. The once abundant liquidity appeared to disappear… Kapoot. I suspect this might happen soon if not happening already as few once promising start-ups in the Bay area shuttered in late 2015.

And many VCs this time are mired in ugly write-downs with next round of funding. i.e, SQ when went public and even Uber with the latest round. More to come as this time it might make 2008 downturn a child’s play and more like ugly 2000 – call it 8 yr tech cycle.

Discgman

Jan 20, 2016 at 5:41 pm

But Zillow predicts 8% increase valuations in Bay Area unrealistate for 2016. I guess they never took the crashing bear stock market in consideration. I could see it coming early last year. What comes up always comes down. Ill be sad to see the tech bros go…not.

chris Hauser

Jan 20, 2016 at 6:00 pm

i watched an interview of her and i think the head of the board. he looked rather irked at her. she didn’t notice.

“But so far, the demand for workers at other companies has been strong enough to mop them up.”

And there in lies the problem.

Start ups were going bust even before 2016. I know a few that were acqui-hired when they went bust. So what we have is Schumpeter’s creative destruction at work.

But the fact that there is somebody out there to fund another start up so that it can pump (and eventually dump) means it is business as usual.

Also, Yahoo is not an apt example, IMO. Its days were numbered even last year when the going was still good for everybody with an idea to deliver a baked potato to your house. Its problems were precipitated by the activist hedge funds. I think Yahoo would have been laying off even if IPO stocks were not crashing.

TheDanimal

Jan 20, 2016 at 6:49 pm

Didn’t Ray Dalio say that QE4 is incoming?

CrazyCooter

Jan 20, 2016 at 8:25 pm

Yes, but your presupposition is that new QE will work (i.e. have the same effect) as prior QE.

Fitbit and GoPro have both announced layoffs. GoPro to layoff 7%. Thus begins the unraveling of the bubble.

CrazyCooter

Jan 21, 2016 at 3:07 am

I would be interested to see a future article on said subject by Wolf. I think PanGloss up thread had sharply made points on the same notion. I saw over at ZH an article on US petrol demand that was very surprising to me (so much so I even checked EIA and confirmed) – demand is down and not looking good. I had been expecting demand collapse from China to be a global driving factor in the oil price collapse story.

For reference, the ZH article (republish from Brandon Smith at Alt-Market.com) specifically this cited source:

That first chart is easily confirmed at the EIA and I had previously not seen it despite looking for demand collapse (knowing the SA crush the frackers meme or similar was total BS).

I think the real underlyer, having not dug further as of yet, is that folks without jobs don’t need to drive anywhere and don’t have demand for products they otherwise could afford (energy to make, fuel to transport, etc). And we are a very consumption driven economy – including huge amounts of petro consumption for working, shopping, etc. The author (WEForum.org) had lots of non-sense (to me) about fuel efficiency and other bullocks-be-aware.

I think the truth is buried in the lack of labor participation (back to the 70s – WHEN WOMEN ENTERED THE WORK FORCE DUE TO INFLATION).

When you don’t have a job and your benefits show up on the 1st, you make ONE trip to Walmart, buy all your stuff, and go home and hunker down for a month.

Jobs. Jobs. Jobs. No demand – no jobs. And they are counting all these new part time jobs (double driving – counterpoint)? The QE cycle has used up the last of the oxygen in the room and I am starting to think the unwind is finally setting in.

I adopted an expression in IT when working on projects for clients that have poor organization skills and aren’t prepared to really drive a solution that fixes the problems they need fixed (despite hiring someone to do just that); peeling an onion. It happens one layer at a time, you start crying somewhere along the way, and the goal isn’t achieved (pain over) until you get to the middle/core where the truth is hiding. Usually it is simple, but the process isn’t.

The simple truth to this is that humans (humanity) often layer gross amounts of complexity over what are relatively simple problems – and forget about the center (truth).

I have a sense that our problem is rooted in the jobs collapse that is driving the collapse in oil demand which is driving the collapse of a very, very, very large pile of very, very, very interconnected web of debt/transactions/obligations that CBs didn’t intend to create but inadvertently did via their QE-this-and-that phases of free money.

And now that it is built – if it falls down it pulls down other things with it – so it is another bastard child adopted …

I think you’re being ironic… to remind in a humorous manner that that’s exactly what they said the last few times before RE prices PLUNGED.

Bay

Jan 21, 2016 at 5:47 am

Last time was due to subprime loans so the main reason for the crash was real estate related. If the markets crash this time, the main reason won’t be real estate related. Even the price drop from 2008-2011 didn’t last that long, it was only 3 years and is now even higher than before the crash in many places.

Take a look at median price chart. And yeah people were saying the same crap especially NAR’s economist Yun the buffoon and RE professionals in 2007. It is amazing how the housing price crept up from 2011 low then went ballistic in 2014.

We learn history as it repeats

chris Hauser

Jan 20, 2016 at 6:02 pm

values are a function of rents or rent equivalents, or value of use today tomorrow or someday. nothing more. the secret of real estate. shhhh.

CrazyCooter

Jan 20, 2016 at 8:28 pm

ChrisH,

100% correct. Every home buyer should look at rent equivalents (whatever proxy is available) and match that to a home price. If the buy price is way over the rent price (all in on costs such as property taxes, maintenance, etc), then renting is the way to go.

Learned that after I bought a house and ended up screwed. Won’t do that again!

In fact, I don’t think I will ever buy again at all just to maintain my mobility. I will consider properties for commercial purposes (i.e. rent income only).

Regards,

Cooter

B Tilles

Jan 20, 2016 at 12:26 pm

One additional thought. The recent emphasis on stock buy backs as a backdoor way to massage eps higher results in companies with higher debt levels. Now these corporations are more fragile financially just as an economic downturn may be upon us or perhaps around the corner.

There was an off-color comment on trading desks of yesteryear that aptly describes the impact of bear markets (I apologize in advance for any offended sensibilities): “When the cops raid the whorehouse, they take the piano player too.”

Investors who meekly reply that the stocks they held onto were “safe” or “cheap” or whatever get hit extra hard in the mouth by Mr. Market. The only way to play it safe in bear markets is short or cash (for purposes of this discussion Treasury’s and high grade munis count as cash). And all those smug folks who talk about being in it for the “long term” — the “Cramer Crowd” — they’ll be sellers too, just later and at lower prices than the rest of us.

chris Hauser

Jan 20, 2016 at 6:03 pm

when the paddy wagon comes, they take the good girls with the bad.

Baboo

Jan 20, 2016 at 12:40 pm

I’m in cash. I’m looking for an entry point into the stock market where prices are attractive for purchase.

Dave Mac

Jan 20, 2016 at 1:41 pm

From my calculations that won’t be until late 2019 early 2020.

By then every stock market should be in “bargain-basement” territory.

Baboo

Jan 20, 2016 at 7:50 pm

Good grief!

Markar

Jan 20, 2016 at 12:50 pm

My heart bleeds for these poor start up investors.

/s

CrazyCooter

Jan 20, 2016 at 12:53 pm

This is another generation of money chasing something they don’t understand but don’t want to be left out of either. Nothing being done today is “transformational” – it is almost by definition incremental application of technology – doing something just a little different than before and bamboozling investors into blowing massive wads of cash. And even that is being very kind in some cases.

Rather than re-type my opinion, please see my “KWave” comment on a previous WolfStreet thread:

Please understand that when email came out – it displaced faxing and phone calls. THAT was a big deal. Remember the glory days of stuffing an envelope and forgetting about it for a week? Faxing something and forgetting about it for a day or two. Today email has drastically redefined how people communicate in and between businesses.

Remember when cell phones were installed in the trunk of your car? Remember getting your voice mail (or messages) when you got into the office. Now the boss calls you anywhere, anytime, and you can’t hide from your email with a smart phone either. Smart phones were a bigger shift, but still an incremental step – just miniaturizing a PC type device and adding cellular service – it is almost by definition a portable PC. But, my point is THAT is a big deal.

There are a few other critters over the last TWENTY years that fall into this space, such as the internet. All those drove a lot of activity – it changed how people spend money. Twenty years ago was 1995 – no internet, no email, no smart phones, no web properties.

These things worked in conjunction to redefine how people worked, shopped, and played. Big money was to be made (and some big money lost too). But it is in the rear view mirror now. These things have largely matured and consolidated. There isn’t a new big thing left. All these IPOs sell the dream that they will be the next email, the next smart phone, but it just isn’t the case.

FFS, Cuban sold his company to Yahoo and bought a sports team. Why didn’t he do another tech start up? Why isn’t he all over these new web properties? Because he knows better!

When the monetary base expands like it has – the money is desperate to find something to buy. Absent obscene money printing – these IPOs and companies would never have happened. The way you get rich in these schemes is to be an insider who sells out on the way up and walks away. And that is exactly what is happening – companies exist because funding is looking for a place to go – NOT the other way round.

And when/if something important comes along, it is commoditized fairly quickly. It is cost prohibitive to set up a web site, get an email account, buy a smart phone? There are many vendors, lots of differentiation, lots of choices, lots of price points.

Buckle up and get out of debt! It is going to be a long ten years to real, genuine growth!

Regards,

Cooter

TheDona

Jan 20, 2016 at 1:28 pm

…and a “long 10 years” is how long The Great Depression lasted after the cocaine and champagne fueled Roaring Twenties in which the Nation’s wealth doubled and those new fangled life changers like running water and refrigerators became common. Substitute the life changers like Internet and smart phones and here we are again…in for the repeat.

B Tilles

Jan 20, 2016 at 4:11 pm

“…10 years is how long the Great Depression lasted after…”

The “hangover” you allude to may have indeed lasted 10 years. But for investors who rode their stocks all the way down in late 1929, the broad market indices did not return to those lofty levels until 1954–a 25 year “hangover” by my reckoning.

polecat

Jan 20, 2016 at 7:02 pm

how about some hangmen over a hangover……

Bryan

Jan 20, 2016 at 2:04 pm

“And that is exactly what is happening – companies exist because funding is looking for a place to go – NOT the other way round.” This is so accurate – it makes me happy to see someone actually understands flows of funds and market dynamics.

Discgman

Jan 20, 2016 at 5:52 pm

Actually Cuban is big in the apps startups. Doesn’t take a whole lot of risk and costs. I seen the 2000 tech bubble first hand. Lots of money to be made if you wanted to commute to the bay area because the housing was overvalued. Sounds familiar. Except its not the dot.com boom now but IPO boom, soon to be bust. I mean, if there is no money, whos going to pay the expensive rents? Buy up all the rising prices of homes? The Chinese looking to dump bags of cash?

BoyfromTottenham

Jan 20, 2016 at 7:27 pm

Hi from Oz. Thanks Wolf and Cooter for your further doses of reality. As a 68 year old retiree, I’m just hoping that interest rates rise to sensible levels fast so I can generate some real returns from my superannuation (aka pension) funds in the mean time. Otherwise I’ll have to buy a few acres and become a subsistence farmer!

Julian the Apostate

Jan 20, 2016 at 12:55 pm

Well Shazam! Who would have thunk it? Where are all the Trolls telling us we are doom and gloomers? Wait, I know, they’re hammering the ‘sell’ button!

Bobster

Jan 20, 2016 at 1:08 pm

1999- Wow, you’ve got a web site! Your company is worth a billion $.
2007- Wow, you don’t have a job but you’ve got a house in California, let us lend you a million $.
2015- Wow, you’ve got an app! You’re company is worth 50 billion $.

Shawn

Jan 20, 2016 at 1:48 pm

Startups throughout the San Francisco Bay Area is one huge ponzi game. The insiders, well connected and hucksters make a killing selling snake oil, the ‘dumb’ money is left holding the bag when the bottom drops out. The jobs these startups provider is the only thing keeping the insane housing bubble we have in the Bay Area from imploding.

Shawn

Jan 20, 2016 at 1:52 pm

Well, there is also all that laundered money coming out of the sinking titanic we know as China, also propping up housing in the SF Bay Area.

Vespa P200E

Jan 20, 2016 at 3:42 pm

Yep and its amusing to see the “dumb” VCs (many soon to be bagholders) throw money at these joke social media and even souped up tech companies like Theranos. That’s what happens when VCs play with OPM (other people’s money) with hefty management fee and bonus tagged onto the profit (but not lose a cent if the “investment” tanks and they get to key their fee).

TheDona

Jan 20, 2016 at 4:52 pm

VCs for the most part are not dumb. They are shills true to definition. They are the the ” Hurry, hurry step right up and see the amazing …blah,blah blah.” And the rest of us pay the ticket to see…well nothing. IPOs and they exit first leaving investors holding the bag. The best con artists put money up front in the scam to make it believable.

The more things change, the more they stay the same.

Can we get to actual earnings please? The early disruptors have it clamped down (Apple, Google,Facebook etc.). The rest of this stuff is a long shot…which is fine if investors will acknowledge. Acting like every long shot is a winner sounds oh so gullible.
Trophy for participation anybody?

Dona, I would like to point out that VCs play a very essential and positive role in our economy. But from time to time, like the last few years, things just get out of hand, and there needs to be a cleansing process where Mr. Market comes in and cleans house. I think that’s what we’re seeing.

Vespa P200E

Jan 20, 2016 at 5:31 pm

Dona – it’s good ol human desire not wanting to be left out syndrome in herd behavior.

Pros who made killing in 2008 made right and contrarian bets.

Dead at 18, Buried at 65.

Jan 20, 2016 at 1:48 pm

Wolf! It seems like there is still a lot of money out there looking for some where to go. It is almost stunning how the lessons of the 1997-2000 Dot-com crash has not been learned. There is an awful lot of “hope” out there asking – no – daring, to be burned. I just need a little of that “wealth transfer” to come over my way!

It makes me think about the book, “Atlas Shrugged”, (Ayn Rand). Where the most important part of it, the middle, at page 413:

“When you see that trading is done, not by consent, but by compulsion—when you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—you may know that your society is doomed”

I don think so. I’m not that pessimistic. I don’t think our society is doomed. I think there will be a recession and big financial losses, nothing we haven’t been through before. I don’t think we’ll end up in the kind of nightmarish scenario described by Ayn Rand’s paragraph. But that may be wishful thinking

:-]

LG

Jan 20, 2016 at 5:06 pm

So millennials will be able to save for retirement , buy homes , go on vacations etc? I don’t think so fact is the “great American” lifestyle has already changed.
70% of Americans born after the 80’s will live out their life in condos excuse me, “Communal developments”.

VegasBob

Jan 20, 2016 at 6:09 pm

Wolf, I must admit that I am more pessimistic than you.

Once a society sinks into a culture of fraud, theft, grift, corruption, deception, deceit, and dishonesty, it becomes utterly impossible to restore honesty, integrity, or ethics to that society. So in that sense, I believe that the USA is already past the point of no return.

Recall that during the S & L crisis of the late 1980s, the first Bush Administration prosecuted and imprisoned nearly 3,000 banking executives for crimes that were less than 1/10 the magnitude of the financial distress this country experienced in 2008-2009. Faced with the 2008-2009 financial crisis, the response of the incoming Obama Administration in early 2009 was (1) to force accounting rule changes in April 2009 that effectively legalized accounting fraud and (2) to adopt a “too big to fail or jail policy,” neither investigating nor prosecuting any of the Wall Street banks for criminal activity. Instead, the Wall Street banks were afforded the opportunity to cough up chunks of their ill-gotten gains through various civil enforcement actions – e.g., paying some form of bribery or blackmail.

These actions (or non-actions) have basically turned the government in a co-conspirator for Wall Street’s criminal activities.

So yes, we are doomed.

polecat

Jan 20, 2016 at 7:08 pm

exactly! ….ask Bill Black how optimistic he feels about now?!

CrazyCooter

Jan 21, 2016 at 3:28 am

I am speaking somewhat out of place, as I am still a student (and reading), but if you have read Will Durant’s History of Civilization you wouldn’t have that opinion (do pay a book collector – worth the money – make notes in pencil throughout the copy your read and eventually gift to your smartest offspring – coolest s**t ever when you are young and reading the old guys/gals thoughts – heck, even stick in a slim paper of notes/poetry/whatever – just don’t get on a high horse – we are all young once – kids today have so much more to bear than we did). Also, if you read E.O. Wilson On Human Nature, you wouldn’t have that opinion.

It is necessary to understand that, as a species, we have only had flushing s**ters for about 100 years (give or take). Computers for the individual are maybe 20 or 30 years.

We, as a species, simply take the lowest hanging fruit … carpe diem (fructus) … seize the day (fruit) !!! Humans are genetically designed to cheat, lie, steal, etc when presented with the opportunity and it is proven. This isn’t the end – it is the place in the cycle.

Be strong and keep a sharp mind so that you are guidance when things turn.

Morality, philosophy, and generally “thinking before you start” are the lessons lost – because they weren’t needed for a while and thus discarded.

Go read about that stuff and wait … it will come back around.

That said, the s**t is going to hit the fan at some point – so don’t get too ideological – just stay practical and aware.

Regards,

Cooter

d

Jan 21, 2016 at 7:07 am

“When you see that trading is done, not by consent, but by compulsion—when you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—you may know that your society is doomed”

He may not have meant to, but he has almost perfectly described, china.

Petunia

Jan 20, 2016 at 5:12 pm

I heard Micheal Lewis once say that he wrote Liars Poker to dissuade young people from going to Wall Street and landed up doing just the opposite. The passage you quoted reminds me that Paul Ryan, the Speaker of the House, and Fed Chairman Alan Greenspan are big Ayn Rand fans. I wonder which of the men discussed in the passage they really admire.

ERG

Jan 20, 2016 at 2:27 pm

“It is going to be a long ten years to real, genuine growth!”

I don’t share your optimism.

Vespa P200E

Jan 20, 2016 at 3:01 pm

Ah head my eyes on shorting SQ but chickened out…

Waiting for juicy IPO to short soon – Samsung Bioepis. The bright minds at Samsung thought getting into me too biosimilar (generic biologics drug) with ZERO experience was the ticket to goose up Samsung’s falling fortunes. They invested USD 2 billion into what will be the world’s largest biologics plant. Trouble is there are other big pharmas like Amgen, Novartis (Sandoz), Pfizer (Hospira), Teva, etc. with the know-how.

TheDona

Jan 20, 2016 at 11:52 pm

Please read about all of the Hospira recalls the last couple of years…like 40plus. I don’t think any of them know what they are doing….or maybe they do and just don’t care because of, well, you know, cha ching management profits. And on a sad note; Glen Frey’s death has been attributed to a biologic.

Ptb

Jan 20, 2016 at 5:07 pm

It’s about time for a correction and the local economy of the Bay Area seems frothy. Everybody is starting to act like things can’t go down. So, it’s about time.

chris Hauser

Jan 20, 2016 at 6:08 pm

prices are high, ain’t they? and air is coming out of the fuel, ain’t it?

if they’re not fed green anymore, do they still shit skittles for the anointed?

Jonas

Jan 20, 2016 at 6:09 pm

My brother in law helped found the bay area startup Bringsy, which I believe is some sort of middle man between delivery couriers and customers. I still haven’t entirely understood what they do, but apparently they are in the final process of signing for 10mm in venture capital.

I wish them well, to hear him speak of it there is no slow down in funding. At least not around Christmas time when I saw christoph. I’ll post here if he let’s me know if they ever got their funding.

Crowd sourced funds might soon become even more popular if VCs indeed curb their spending. And not all ventures need 9 figures to get going!

Vespa P200E

Jan 20, 2016 at 7:43 pm

Crowd sourcing for wanna be naive and gullible “investors” – what can go wrong (sarcasm)?

BTW – having been in periphery of raising money for start-up that raised $175 mil in 2 yrs – details my friend and TERM SHEET that changes as wind direction changes. The VC’s for the start-up you mentioned may be asking for moon and the sky now and the purveyors of the biz might be forced to sell out for pittance and lose control of the biz.

Jonas

Jan 20, 2016 at 9:54 pm

Hey, I like crowd sourcing it’s a fabulous idea. I’m an active contributor on kickstarter where I’ve received some really neat stuff, like the game that teaches programming. My oldest kids loved it and the makers are now selling it through regular channels.

Likewise, crowd sourcing financing can work out too. As for my b in laws business, well I wish him the best. It’s a glorified delivery business, it would be neat if he manages to cash out while the field is still hot.

These recent bubble valuation companies are just so weird: since when are package delivery or cat sharing hot business segments? Something like biotech I can understand, but silicon valleys latest crop seems kind of weak intellectually / Philosophically if you know what I mean.

CrazyCooter

Jan 20, 2016 at 8:52 pm

A coworkers husband crowd source funded a salmon skin wallet business. I haven’t asked about it in a while, but last I heard it seems to be doing well. All the growing pains of starting from nothing and getting slammed with demand.

Wolf, can’t reply to your reply directly in format…but yes having VC investment money would be great for new VIABLE product/service (what would good odds be: one in 10, one in 100? I have no idea). Small business loan, small investor, or growing organically for a great idea won’t cut it these days. No more garage ideas going public. But….as these last few years have questioned…what is viable and what is total hype? VC money for renting clothes, Laundry service, not to mention something more scientific like Theranos which to date is not proven. Sounds like Happy Hour investing….the more you drink the better it sounds. I fear we are in a looong hype phase. How long will the hype phase last if we are forced to play the 401k casino….for one’s lifetime? We point the finger at China for manipulating and imprisoning citizens in the stock market and yet we are just as egregious. Invest…all is well. Nothing to see behind the curtain.

Sorry, but I do not believe in Mr. Market anymore…maybe Mr. Bill? ;-) Oh Noooo!

Yeah, Mr. Market has been lackadaisical with his clean-up job over the past 7 years. A lot of dirt has accumulated. I’m with you: he Lost much of his credibility. But some day, he’ll sober up and go to work, he usually does eventually…. Or am I wishful thinking again?

TheDona

Jan 20, 2016 at 8:39 pm

Mmmm, uh…Mr. Market is still drunk and Toonces is the designated driver. Sorry for the bad news.

CrazyCooter

Jan 20, 2016 at 8:59 pm

My favorite quote on this subject is penned by none other than Richard Feynman.

“For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.”

It is the final sentence of a report he prepared for Congress if I am not mistaken.

Reality will return at some point – it is assured – the only question is “when”.

Regards,

Cooter

TheDona

Jan 20, 2016 at 11:17 pm

Thanks for the link. Agreed; NASA oriented technology can not make mistakes like killing people or wasting billions of tax payers money for the sake of public relations. It can not nor will not be tolerated. The crap shoot of this faux technology (the next cool thing) is palatable as it is: not harming anyone, not publicly funded, and more or less voluntary. I do not see the reality of valuation returning at any point in time during this generation. We are too far gone into making bets on dog races, cock fights and drinking games…metaphorically speaking. It just seems like gambling. Where are the actual yearly earnings? This accounting mumbo jumbo is not reality.

CrazyCooter

Jan 20, 2016 at 11:42 pm

The context was that NASA launched space shuttles when the scientists were saying “it isn’t ready” and “it isn’t safe” but the managers overrode them and did it any way. This was a culture and eventually it resulted in the Challenger disaster.

I used it to demonstrate that “Mr Market” never really went anywhere … one day this BS the CBs have been pulling for years and years will just go sideways … and Mr Market will have his day and the CBs will lose.

Regards,

Cooter

polecat

Jan 21, 2016 at 12:50 pm

we’re all ferengi now

ERG

Jan 20, 2016 at 8:34 pm

The longer it takes Mr. Market to clean house, the more unpleasantly severe he will be when it finally happens.

d

Jan 21, 2016 at 7:11 am

The longer it takes Mr. Market to clean house, the more unpleasantly severe he will HAVE TO be when it finally happens.

correct.

Michael

Jan 20, 2016 at 9:54 pm

What are the odds that the FED increased rates to prick the bubble? The consensus is that they will not raise again. Larry Summers said the economy cannot withstand additional rate increases. Maybe that is their actual plan.

CrazyCooter

Jan 21, 2016 at 3:30 am

I have been wrestling with this for quite a while and I don’t have a strong opinion yet. Usually I do.

maybe humans ARE due for extinction, when sports takes precedent over real-life basic needs …….. to maintaining the commons!!!

ML

Jan 21, 2016 at 1:13 am

For all its pretentiousness and let’s face it the stock market is just that, the market got overheated and too frothy. The froth has evaporated. What is left is all too clear to see. Not as much liquid(ity) as one might have imagined.

QE was a vain attempt to prop up the liquidity but it could only have succeded if receipients had not invested in froth.

For the UK, my prediction as recorded in two publicly- accessible places was for the end of 2015 FTSE index to be about 5800 and the same for 2016 with a low point of around 4500. So far so good.

ERG

Jan 21, 2016 at 8:36 am

re: Tech Workers. It will not take 10 years, Cooter. There are already signs of salary compression in most disciplines with the exception of IT security. I’d give it a couple more years.

For a long time, the only two professions immune to what you’re talking about have been medicine and law. Obamacare just took care of medicine. Law will come next but it will be a while because it takes longer to have the profession that makes the rules collectively agree to rules that put them on the path to career suicide. As more and more of what they do is automated (sheez, man EVERYthing can be automated!) it will be unavoidable.

To add more lawyer doom and gloom to it: much of the grunt work of lawyering at big law firms that used to be done in endless all-nighters by associates is now done in seconds by computers (research) and even some more advanced work is outsourced to firms in India. Big law firms are going through all kinds of adjustments right now, including bankruptcies.

RK2

Jan 21, 2016 at 3:01 pm

Maybe the the true field to be in is that of soil, tilled by plow horse. It’s productivity worthily of measure. All the VC types in jeans…pushing us away from healthily living, distracting us from the security of understanding our earth. If you were jeans, then learn the trade. Sheep’s clothing is Silicon Valley’s go to attire